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Low inflation and rising wages boost consumer spending in February

Visa

3 min read Partner content

Rising real incomes and low inflation are driving growth in consumer spending, according to new statistics.

The UK Expenditure Index, produced by Visa Europe, shows an annual rise of 1.2% in consumer spending in February.

This follows a similar increase in the two months prior, with January seeing a slightly higher 1.4% annual rise and December, the same, at 1.2%.

The best performing sector was hotels, restaurants and bars, which was boosted by 9% compared to the previous year.   

The clothing and footwear sector fared worse, however, recording an annual fall of -3.4%.

Commenting on the figures, Labour MP Teresa Pearce who sits on parliament's Treasury Committee welcomed the rise in confidence, but warned that wages were still dragging:

"The figures show consumer confidence running much higher than consumer spending which is an unusual trend as up until 2013 the two trends would have mirrored each other. It would be interesting to know what is making consumers feel more confident as the constituents I represent don't seem to be feeling so optimistic but maybe that's because they are the ones working in the bars and restaurants rather than the ones drinking and eating.

"I welcome these figures as good news for our retailers who have struggled in recent years. However,  I would urge some caution as the figure for consumer confidence is so much higher than wage rises. If that 'over confidence' led to a debt fuelled economic recovery it would, in my opinion, be a disaster for the economic wellbeing of ordinary families."

UK & Ireland Managing Director of Visa Europe, Kevin Jenkins, said:

“Household spending may not have been quite as strong as January, but February was still another good month for the consumer economy.

“With household incomes returning to pre-recession levels and low prices on food and fuel, consumer confidence looks in decent shape.

“British consumers look to be spending more on the things they enjoy. Dining out was clearly popular again in February as hotels, restaurants and bars saw a bumper month, while spend on recreation and culture bounced back for the first time since August 2014.”

“On the flip side, spending on clothing fell for a third month in a row in February.”

Senior Economist at Markit, Paul Smith, welcomed the findings, saying that the Index “signalled that underlying year-on-year growth of consumer spending remains solid.”

“Despite a slight monthly drop following a strong January, February’s Visa Europe: UK Expenditure Index signalled that underlying year-on-year growth of consumer spending remains solid.

“With the exception of Clothing & Footwear, retail-facing sectors seemed to perform particularly well, especially household goods which enjoyed its best performance for seven months.

“Overall, we expect consumer spending to make ongoing positive contributions to total UK economic activity, with the data indicative of a 0.6% q/q rise in GDP over the first quarter as a whole.”

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